NEWS ANALYSIS: Retailers See ‘Blu’ Bottom Line

To borrow from Mark Twain, “The report of [discs’] death was an exaggeration.”

Sales of Blu-ray Disc movies and catalog DVDs have shown significant resilience in 2012 — despite operating in a market inundated with less expensive kiosk rentals and subscription video-on-demand, according to separate 10Q filings released this week by Hastings Entertainment and Trans World Entertainment Corp.

Albany, N.Y.-based Trans World, which operates 379 f.y.e. (For Your Entertainment), Suncoast and Second Spin packaged-media retail stores, and related websites nationwide, saw same-store sales (open at least 12 months) of movie discs increase 6% during a 28-week period (ended July 28) compared with the same period last year.

Disc sales (including DVD) accounted for 43.5% of the f.y.e.’s $203 million retail sales compared with 41.7% during the same period in 2011. The strong results prompted Trans World to open a new f.y.e. store at Annapolis Mall in Maryland at the end of the month.

CEO Robert Higgins said there still exists a consumer need for entertainment retail in malls and shopping centers. He said landlords covet the category and Trans World is the only true entertainment retailer operating at the national level.

More importantly, Higgins said studios and retailers have become more proactive with retailers regarding pricing and incentives — perks he said Trans World should rightly receive.

Meanwhile, Hastings Entertainment, which operates 139 stores in the Southwest, saw sales of movie discs increase 0.4% in its most recent fiscal period (ended July 31) compared with a decline of 11.4% last year. For the first half of its fiscal year, disc sales fell 2.2%, which represented a 6.6% improvement from the same period last year.

Hastings attributed the trend to Blu-ray, which it said helped offset DVD sales declines. Indeed, the chain saw a 14.1% drop in disc rentals in the first half of the year, primarily due to fewer rentals of DVDs and video games — partially offset by an increase in Blu-ray rentals. Hastings rents select catalog DVDs for as little as 49 cents a day.

Michael Pachter, analyst with Wedbush Securities in Los Angeles, believes the spike in disc dales in the first half of the year was due more to the quality of the releases and related retail discounts than just the Blu-ray format.

Indeed, Hastings reported that than same-store disc rentals decreased 11.9% for the period primarily due to lower quality of new releases and competition from kiosks and SVOD.

“I think that Blu-ray will ultimately replace DVD altogether, driving overall revenue higher, but that is probably five to 10 years away, so I would be skeptical about it contributing to the recent rebound,” Pachter said. “There might just have been a better lineup at retail than last year.”